Teaching German

Trade

Ambitious transatlantic trade deal in the works

The largest free trade area in the world: the US-EU project sounds gigantic. As with most major projects, however, the devil is in the details.

Negotiators on both sides of the Atlantic agree that trade barriers between the US and the EU must fall. US President Barack Obama, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso on Wednesday (13.03.2013) announced talks on a pact to eliminate tariffs and trade barriers. Official negotiations could begin in a few months time, they said.

The US and the EU stand for about half of the global economic performance and a third of global trade. Germany would be likely to profit from a free trade deal: traded goods would become cheaper while the pact would also boost labor markets and wages.

Spur growth

"In times when the economic framework is insecure due to financial and economic crises, facilitating bilateral trade should be a central issue for both sides in order to spur growth," Anton Börner, President of Germany's Federation of German Wholesale, Foreign Trade and Services (BGA), told Deutsche Welle. He said a free trade pact between the two regions would not only create jobs and increase wages, but also have an appreciable impact on private prosperity.

At an average of between five and seven percent, tariffs between the US and the EU are already low. But the value of the goods which cross the Atlantic every year is more than half a trillion euros, and so industry would save billions. In 2010, European chemical firms paid the US almost 700 million euros ($934 million) for exports. In turn, the US paid about one billion euros to Brussels. Business federations expect the elimination of trade barriers will lead to less bureaucracy for medium-sized companies and free up more money for investments in research and development.

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A transatlantic free trade deal on the horizon

Strengthen exports

German economists expect a stimulus to the tune of billions of euros. "The free trade accord could increase our exports to the United States by three to five billion euros per year," said Volker Treier, managing director of foreign commerce at the Association of German Chambers of Industry and Commerce (DIHK). AmCham, the American Chambers of Commerce in Germany, expects an additional 1.5 percent growth in Gross Domestic Product. Many European businesses hope the trade agreement would make it easier to bid for public contracts in the US.

But before a transatlantic free trade deal becomes reality, said BGA chief Börner, there are many hurdles still to be cleared. The two sides do not see eye to eye on several issues, including trade in agricultural products.

France fears competition in the agriculture sector and the US wants to continue to ban imports of beef from the EU for fear of mad cow disease (BSE). "In turn, the EU is opposed to accepting genetically manipulated food or chlorinated US chickens on its markets," Börner said.

Börner warned that one should not underestimate bureaucratic hurdles, particularly in the US. In Europe, many areas have already been harmonized by the EU or responsibility has been transferred to the EU, Börner said, while in the US, "jurisdiction is partly fragmented and relegated to the individual states."

Dangerous dominance

A bilateral US-EU accord would create a gigantic trade area. With almost half the world's economic performance, Börner fears that such trade dominance "could be misused to permanently paralyze multilateral negotiations."

He insists that such an accord must not be meant to wall off the regions from third parties, he said: "Talks about a transatlantic free trade zone should not be misunderstood as a substitute for multilateral negotiations on the level of the WTO." The power and dynamic that a transatlantic free trade area would set free should rather be used to revive the deadlocked WTO talks.

Greater integration of transatlantic markets would not just benefit the two partners, Börner said: "A transatlantic trade deal would also be a clear signal against protectionist tendencies."